JPMorgan Chase faces lawsuits after pulling cash from Madoff
Friday 30 January 2009
JPMorgan Chase, the banking giant, is bracing for lawsuits over the Madoff affair, after admitting that it pulled its own money out of hedge funds linked to the Wall Street swindler while leaving hundreds of European clients exposed.
Those clients have lost at least an estimated $30m (£21m) after the former Nasdaq chairman Bernard Madoff was revealed to be running the largest Ponzi scheme in history.
JPMorgan bankers in London created $136m of complex derivatives that allowed investors to bet on the performance of two Connecticut hedge funds, whose steady profits had become the envy of the industry.
The funds, run by Fairfield Greenwich, a firm founded by a long-time associate of Mr Madoff, Walter Noel, had been channelling money to Mr Madoff.
The bank did not sell the derivatives directly to clients, but instead to distributors who marketed them to wealthy individuals and fund managers across Europe. And because it would need to pay out on the instruments in proportion to Fairfield's returns, JPMorgan put $250m of its own cash into Fairfield. However, the bank pulled that money out in the early autumn, after a review suggested the investment could be at risk. It became concerned about a lack of transparency after receiving unsatisfactory answers to questions that it had posed to Fairfield's custodian bank.
Now, furious investors in Italy and elsewhere in continental Europe are considering suing JPMorgan for not publicising its doubts. The majority of the derivatives came with insurance against losses, but $30m in higher-yielding notes did not. People involved in the review at JPMorgan were said to have understood suspecting fraud was not sufficient reason to inform clients, since such a move would raise defamation concerns.
Yesterday, the bank said: "Following the close of the Bear Stearns merger last summer, we did a wide-ranging review of our hedge fund exposure. We took a risk management view to reduce these and other exposures."
- 1 UK's biggest male rape charity Survivors UK has state funding slashed to zero despite 120% rise in men reporting sexual violence and seeking help
- 2 'Don't blame all men for rape' campaign backfires spectacularly
- 3 Isis burns woman alive for refusing to engage in 'extreme' sex act, UN says
- 4 Puerto Rico, island of lost dreams: People are leaving the debt-hit territory in droves as near neighbour Cuba's star rises
- 5 Charlie Charlie Challenge explained: not a Mexican demon being summoned — it's gravity
UK's biggest male rape charity Survivors UK has state funding slashed to zero despite 120% rise in men reporting sexual violence and seeking help
Iran launches anti-Isis cartoon competition 'to expose true nature of Islamic State'
Priest warns pupils the 'Charlie Charlie Challenge' is 'demonic activity'
Tinder and Grindr dating apps blamed for surge in cases of HIV, syphilis and other STDs
Fifa corruption arrests: Sepp Blatter 'quite relaxed' and confident he is 'not involved'
EU referendum: David Cameron's rules are a 'democratic disgrace', says French-born Scottish politician set to be denied a vote
The day that Britain resigned as a global power
SNP fury as HS2 finds 'no business case' for taking fast train service to Scotland
A nation of inequality: How the UK is failing to feed its most vulnerable people
Australian man punched in the face for defending Muslim women from abuse on train
EU referendum: David Cameron to deny EU migrants and under-18s the chance to vote
iJobs Money & Business
£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...
£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...
£16 - 20k: Guru Careers: A Graduate Editor / Editorial Assistant is needed to ...